Japanese cryptocurrency and blockchain technology FinTech Lab, Tech Bureau Corporation, recently launcheda new bitcoin investment service, the Zaif Coin Reserve. Customers simply authorize a fixed monthly debit, and it’s automatically invested in bitcoin.
Brave New Coin spoke with Tech Bureau CEO, Takao Asayama, who explained more about the new service. “This is a fusion of Japan’s domestic payment method and crypto products, into a very interesting crypto investment program.”
Tech Bureau is a Japanese blockchain technology company that operates a bitcoin exchange, Zaif, and a permissioned blockchain platform, Mijin. Last week, Tech Bureau announced that it has raised ¥720 million, or about US$6.6m in a Series A funding round to further develop Zaif and Mijin. The trading platform, Zaif, boasts more than a 20 million yen in daily turnover, and is one of Japan’s largest bitcoin exchanges.
The product is also the first of its kind in Japan. “I’ve never seen this before in other countries,” Asayama shared, adding that this is a “Bitcoin investment program you rarely see.”
The new service uses an investment technique called dollar-cost averaging (DCA). “We automatically buy bitcoins for all the buyers,” Asayama explained, “the timings and amount are automatically dispersed.”
There is a minimum monthly deposit of 1,000 yen (~US$9.1), and maximum of 1 million yen (~US$9100). Deposits are automatically debited from client accounts on the 27th of each month. “Direct debit in Japan is the most powerful payment method I know of, and very popular,” Asayama said.
DCA is a common investment strategy, where a fixed amount is invested on a regular schedule, regardless of the asset price. Consequently, more assets are purchased when the price is low, and fewer are bought when the price is high.
“Through the investment strategy known as ‘dollar cost averaging,’ you can protect yourself from the risk of investing all of your money at the wrong time by following a consistent pattern of adding new money to your investment over a long period of time.”
– The US Securities and Exchange Commission
This method is typically employed in volatile markets. JP Morgan Asset Management states that “volatility may, in fact, work for you if you follow a disciplined, regular savings plan under which you invest a fixed sum of money at regular intervals,” referring to the DCA method.
“The sooner you start, the longer you stay invested, the more you can take advantage of the magical power of ‘dollar cost averaging!’.”
– JP Morgan Asset Management
In some cases, investors may even realize better overall returns with DCA. According to leading online trading brokerage Fidelity Investments, “the average price per share of your investments may be lower than if you invested all your money at once.” In addition, the temptation of trying to time the market will be avoided, the firm added.
“Dollar cost averaging does not ensure a profit or guarantee against loss in declining markets. For the strategy to be effective, you must continue to purchase shares both in market ups and market downs.”
– Fidelity Investments
Many investors are tempted by market timing, making buy or sell decisions while predicting short term market movements. Sharp declines often scare investors into selling, while quick bumps can draw in new buyers.
“That could prove a costly mistake,” states British multinational banking and financial services company Barclays “our trouble with market timing is due to human nature.”
A study commissioned by Barclays, conducted by the Cass Business School, found that the typical investor lost 1.2% a year moving in and out of funds, compared to a buy-and-hold strategy.
“We can be irrational and prone to panic and overconfidence. So while we may well have a long-term investment strategy, it can be hard to stick to it. We’re inevitably affected by unexpected events and emotions – fear resulting from a market slump, say – and lose sight of the bigger picture.”
An independent report from Charles Schwab Corporation, an American brokerage and banking company, showed that the best strategy for most investors is to avoid timing the market. The firm looked at different time periods, going as far back as 1926, and concluded that on average, for every 30, 40 and 50 year period, perfect timing was the most profitable, but as likely as winning the lottery. Investing immediately or dollar cost averaging, came in second, with bad timing and never buying stocks trailing behind.
“If you don’t have the opportunity, or stomach, to invest your lump sum all at once, consider investing smaller amounts more frequently. As long as you stick with it, dollar cost averaging offers several benefits.”
– Mark Riepe, Head of Charles Schwab Corporation Center for Financial Research
Mark Riepe, the Head of Charles Schwab Corporation Center for Financial Research, explains that DCA prevents procrastination when investing, minimizing regret should a large lump-sum investment suffer a short-term drop in value, and avoiding market timing. The strategy is also beneficial “if you like the discipline of investing small amounts as you earn them,” he wrote.
For investors who have the option of investing lump-sum amounts, research from American investment management company Vanguard revealed that Lump-Sum Investing (LSI) outperforms DCA on average. The firm compared the historical performance of DCA with LSI across three markets: the United States, the United Kingdom, and Australia.
However, they also noted that DCA may be preferable for minimizing downside risk and potential feelings of regret, should an investment precede an immediately market downturn.
“LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments.”
While there are potential benefits, DCA investing does not guarantee a profit, and does not protect against loss in declining markets. American global investment management corporation, BlackRock, warned its clients that “all financial investments involve an element of risk. The value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.”
Whether DCA is right for an investor depends on their investment goals and risk tolerance. Emphasizing that this service is not for everyone, Zaif states in its press release that their new service is “not aimed at high-risk high-return” investors, but for those seeking “a stable income.”
There is also the fee structure to consider. Zaif’s new service starts at 100 yen for deposits between 1000 and 2000 yen. Other fees range from 1.5% to 3.5% based on deposit amounts, with the largest fee tier being 1.5% on deposits of 5000 yen upward.
For example, a monthly deposit of 10,000 yen incurs a 2.5% fee. 10,250 yen is debited from the account owner’s financial institution each month, and 10,000 yen is deposited into the client account. Bitcoin is then purchased, and credited to the Zaif account owner the day after.
The account owner can then simply hold the bitcoins in the account or withdraw them at any time. “We will be adding more popular cryptos such as ETH or XEM very soon. People can invest in growing cryptos while spreading their risk,” Asayama adds.
Disclaimer: The information provided in this article is for informational purposes only and is not meant to represent the performance of any particular investment or constitute investment advice.